Acc Handout 8 with Solutions

eACC 212 – Handout #8
XYZ, Inc. reports the following balances in its accounts on 5/1/09 Debit Credit
Cash $ 210,000
Account Receivable 90,000
Inventory 200,000
Account Payable 100,000
Common Stock (100,000 shares $1 par) 100,000
Paid in Capital in excess of par 250,000
Retained Earnings 1/1/09 0
Net Sales Revenue 250,000
Cost of Merchandise Sold 150,000
Expenses 50,000

Transactions for May: 1) Paid expenses of $10,000 on 5/1/09 (debit “expenses” even though individual expense accounts would be debited) 2) On 5/1/09 XYZ, Inc. purchased a 2-year 6% corporate bond at par with a face value of $100,000
(they will receive interest payments on October 31 & April 30) 3) On 5/3/09 XYZ declares a cash dividend of $0.03 per share (100,000 shares outstanding) 4) Paid $60,000 on 5/10/09 for inventory purchased on account in April 5) Sold $3,500 of inventory to a customer on account on 5/17/09; cost of merchandise sold is $2,000 6) Received $10,000 from a customer on 5/20/09. The sale was made on account in April 7) On 5/25/09 XYZ Inc. pays the cash dividend (refer to transaction 3) 8) Prepare the entry XYZ would make on 5/31/09 to accrue one month of interest on the bond they purchased on 5/1/09 (refer to transaction 2)

Prepare journal entries for transactions 1 - 8, update the balances in the accounts, and prepare financial statements

| | | | | | | 1 | Various Expense | | | 10,000 | | | | Cash | | | | 10,000 | | | | | | | | 2 | Investment in bonds | | 100,000 | | | | Cash | | | | 100,000 | | | | | | | | 3 | Retained Earnings | | | 3,000 | | | | Dividends Payable | | | 3,000 | | | (100000*.03) | | | | | | | | | | | 4 | Accounts Payable | | | 60,000 | | | | Cash | | | | 60,000 | | | | | | | | 5 | Accounts receivable | | 3,500 |